hp

Post-PC: Wall Street Likes the View

 

The conventional PC business is now on the decline and yet share prices for of key players Microsoft and HP are moving up. Why?

In an April press release, IDC painted a bleak picture for the PC. Compared to last year’s first quarter, worldwide shipments of PCs are down 13.9%, the “steepest decline ever in a single quarter”. US numbers are about the same: -12.7%. On a graph, the trend is unmistakable:

Is this a trend Wall Street likes?

When you consider Microsoft, it seems so. In a corporate blog post titled Windows 8 at 6 months, the company proudly claims to have “recently surpassed the 100 million licenses sold mark for Windows 8.” This is an interesting number. A quarter ago, MS announced it had sold 60 million licenses, meaning that only 40 million were sold in the last three months. That’s a 33% drop…hardly a rousing success. (The “licenses sold” phrase requires caution, it doesn’t only mean “sold with new PCs”, there are also updates to existing machines, with or without enthusiasm for the new Windows OS.)

“Ignore the Windows 8 numbers and IDC analysis”, says Wall Street. While the tech-heavy Nasdaq climbed only 6.6% in the last 60 days, Microsoft shares went up by 21%.

The same apparent illogic holds for Hewlett-Packard. Last week, the largest PC maker disclosed its second quarter numbers. Compared to the same quarter last year, they’re not exactly pretty:

Revenue down by 10% to $27.6B
Operating Margin at 5.8%, down by about 20% (HP prefers “down 1.4 points”)
EPS (Earnings Per Share) at 55 cents, down 31%

Zeroing on HP’s PC business, things look worse:

Revenue down by 20% to $7.6B
Operating Margin at 3.2%, down 44% (“down 2.2 points” sounds better)

As one would expect, Wall Street reacted, and HP shares went…up. By 17.8% the day after the announcement:

What was the good news for investors? Resorting to one of the usual bromides, HP “handily beat Street expectations” by posting Earnings Per Share (EPS) of $0.55 vs. a projected $0.30 to $0.40.

As discussed in the December 16th Monday Note, Chapter 2 of the Turnaround Artist Manual prescribes exactly what we’re seeing: Drastically lower expectations within days of taking on the job. “Things are worse than I was told. We’ll have to touch bottom before we bounce back…’”

Following the script, HP CEO Meg Whitman called 2013 a “fix and rebuild year”. Everyone should expect a “broad-based profit decline”. But a 17% rebound in the stock price can’t be explained solely by a collective sigh of relief when the actual numbers aren’t as bad as the CEO had led everyone to expect.

(In its earnings release, HP still calls itself “The world’s largest technology company”. I guess they think smartphones and tablets aren’t “technology”, but PCs and printers are…)

As quoted in a VentureBeat post, Whitman thinks that the other US PC maker, Dell, is in no better shape:

“You saw a competitor, Dell, completely crater earnings,” Whitman said in response to a question. “Maybe that is what you do when you are going private. We are setting up the company for the long term.”

Ironically, and without a hint of self-awareness, she accuses Dell of playing the Setting Artificially Low Expectations game:

She implied that Dell did that on purpose, since Michael Dell is motivated to repurchase shares in the company as cheaply as possible, and deliberately lowering earnings is a good way to get the share prices to fall.

 Actually, Whitman must envy what Dell is attempting to do: Get out of the PC clone Race To The Bottom. Because PCs make half of Dell’s revenue, getting out of that hopelessly commoditized business would cause trouble if done in public. Going private allows Dell to close the curtain, perform the unappetizing surgery out of view and, later, return to Wall Street with a smaller company endowed with a more robust earnings engine, focused on higher-enterprise gear and services.

This helps explain the apparent paradox: Wall Street doesn’t like HP and Microsoft shares despite their lower PC numbers but because of them. Investors want to believe that future earnings (the ones they count on when buying shares today) will come from “Post-PC” products and services instead of being weighed down by shrinking PC volumes and margins. In particular, those who buy HP shares must believe that the company will sooner or later exit the PC clone business. For Microsoft, the bet is that the company will artfully manage a smooth transition to higher Enterprise and Entertainment revenues and their fatter margins.

I’m not in fond of the “Post-PC” label, it lacks nuance and it’s premature. The desktop and laptop machines we’ve known for more than three decades may no longer be the sole incarnations of our personal computing – our affection, time, and money have shifted smartphones and tablets – but the PC will continue to live in our offices and homes.

Regard Lenovo, the Chinese company that seized on IBM’s PC business when Big Blue decided to exit the race. They’re doing quite well, posting a record $34B in revenue for this year.

There is life left in the PC business, just not for US incumbents.

JLG@mondaynote.com

 

Whitman: One Write-Off Too Far

 

Meg Whitman’s efforts to turn HP around follow a proven script. But, in her efforts to frame future results against a background of past misdeeds, she might have gone one excuse too far and engaged in a potentially embarrassing fight against Mike Lynch, Autonomy’s founder.

Turnaround Artist Manual – Chapter 1: Walk in with a frown; blame your predecessor; slash projects, budgets, people; lower expectations, loudly; and write off assets.

When you’re finished, any progress going forward will be attributed to your decisive surgery and skill at the helm. You reap the benefits of a statistical illusion: Cut something by 50%, use time, work, and a little bit of luck to bring it back to its pre-surgery size, and you’re a miracle worker! 100% growth!

When Meg Whitman became HP’s CEO in September 2011, she followed the manual to the letter, and how!

Whitman had more than one predecessor to blame: Leo Apotheker was culpable for sins that we’ll review in a moment; Mark Hurd for acquiring EDS for $13.9B, for starving R&D down to less than 2.5% of revenue, and for the ill-fated $1.2B Palm acquisition. For good measure, Whitman included Carly Fiorina in her “rotating cast of CEOs” who were at fault for their “multiple inconsistent strategic plans and executional miscues“.

Then we have the HP layoffs. Early in 2012, Meg projected 27,000 layoffs through 2014, a number that has since increased to 29,000. (HP employs about 300,000 people worldwide.)

Next in the manual: lower expectations. As reported by Business Insider, HP’s CEO calls 2013 a “fix and rebuild” year, warning that the company will experience a “broad-based profit decline”. But there’s a silver lining: Whitman promises that HP will not only hit its savings targets and complete its restructuring by the end of fiscal 2014, but that the company’s revenues will be “growing in line with gross domestic product”…by 2016. (A high-tech Valley company that won’t reach GDP growth rates for three years… really?)

Further, after stating how important smartphones are to HP…

“My view is we have to ultimately offer a smartphone because in many countries of the world, that is your first computing device.”

…Whitman makes it clear that we shouldn’t expect an HP device in 2013. Does this mean that HP will introduce a smartphone in 2014 when Samsung and Apple will have taken complete control of the market? With all due respect, Whitman shouldn’t take IDC’s bizarre and fluctuating predictions seriously (11% market share for Windows Phone by 2016). Few people do outside of Redmond.

Next up: Write-offs. Here, Meg doesn’t go for small numbers, starting with a $3.3B Palm/WebOS asset zap. As the übergizmo article points out, the Palm misadventure cost shareholders close to $5B. Imagine what a startup could do with that kind of money.

And then there’s EDS, an IT services company founded by the industry legend Ross Perot and acquired by HP in 2008. Whitman decided to write off $8B of the $13.8B purchase price (58%) and, in a masterful stroke of corpospeak, managed to convince an IDC analyst that this was “Really Good News In Disguise“. Yes, that’s exactly the point of the Turnaround Artist Manual.

The grand finale is the Autonomy write-off. Acquired in August 2011 for $11.1B, HP’s official documents at the time called the acquisition “accretive“, that it would add to shareholder wealth. It sounded like a great idea: HP would have vaulted itself into the front of the pack in the exploding unstructured data applications sector.

A year later, HP’s CEO writes down Autonomy to the tune of $8.8B — 80% of the acquisition price tag. In an alternate reality, Whitman places hand on heart and takes the blame:

“I was on HP’s Board of Directors when we made the decision to acquire Autonomy. I have been part of the problem and I will now lead the solution. I’m committed to give Autonomy the place it deserves in HP’s products portfolio.”

Wall Street grumbles a bit, but the industry — and the company — applauds Whitman’s frankness, her leadership by example.

But that’s not what happened. In the aftermath of the Autonomy fiasco, Whitman blames everyone but herself and the current HP directors. First she points a finger at her predecessor, Leo Apotheker. Leo smiles and benignly lets it be known he is ready to help: “I will make myself available, however I can, to assist HP…”

(Apotheker has since assumed a more assertive stance in reminding everyone of the role that Ray Lane, HP’s chairman, played in the Autonomy transaction: “No single CEO is ever able to make a decision on a major acquisition in isolation… and certainly not without the full support of the chairman of the board.”)

Whitman then focuses on the company’s then-CTO, Shane Robison, who led the team that performed the due diligence. Blaming the well-liked Robison, who recently — and conveniently — retired, hasn’t won Whitman any friends inside the company.

Finally, she accuses Mike Lynch, Autonomy’s founder and CEO, of “accounting improprieties”. HP considers a referral to the SEC’s Enforcement Division and the UK’s Serious Fraud Office, and threatens to force Lynch to testify “under the penalty of perjury“.

The amount of the alleged fraud, around $100M, can also be explained by revenue recognition difficulties. These are not infrequent, especially when different accounting standards are involved, IFRS for most European companies (such as Autonomy), vs. GAAP in the US.

And, yes, the $100M “problem” would impact the transaction price by perhaps $1.5B, but that leaves another $5B to account for. (About $2B of the Autonomy write-off come from convolute but legit accounting mechanics tied to HP’s own stock price decline.)

Despite this discrepancy, Whitman attributes the bulk of the write-off to irregularities under Lynch’s regime. Catherine Lesjak, HP’s CFO, explains it thus [emphasis mine]:

The majority of this impairment charge [i.e. write-off] is linked to serious accounting improprieties, disclosure failures and misrepresentations that occurred prior to HP’s acquisition of Autonomy and the associated impact on the financial performance of the business over the long term.”

Vague words such as “associated impact” and “long term” purposefully confound a modest revenue recognition question with a much bigger problem. Many think the accounting snafu is a smoke screen: The Autonomy acquisition was simply a bad decision.

With Autonomy, Meg Whitman may have gone one write-off too far. Mike Lynch is a Larry Ellison-grade adversary: intelligent, articulate, aggressively entrepreneurial, with a willingness to create a reality distortion field around his company and an unwillingness to back down.

Lynch immediately writes to HP’s Board and demands proof of the allegations. Nothing so far. He then launches a website to buttress his defense and counterattack. His thesis is simple:
– First, Autonomy’s books were vetted by world-class accounting and consulting firms (Deloitte and KPMG) during the acquisition’s due diligence process.
– Second, HP’s Board of Directors, which comprises industry experts such as Ray Lane (ex-Oracle) and Marc Andreessen (ex-Netscape, Opsware, and founder of the Andreessen Horowitz venture firm) to say nothing of Meg herself, unanimously supported the acquisition proposed by Léo, himself an Enterprise Software expert (22 years at SAP).
– Third, Lynch contends that HP’s ponderous bureaucracy completely misunderstood and mismanaged the entrepreneurial culture that made Autonomy successful. As a result, key people left and the business is now in shambles.

The too-convenient Autonomy write-off and the attacks on Lynch could badly backfire. Legal action against Autonomy’s founder could open a Pandora’s box of embarrassing information.

For example, at its October 3rd analyst meeting, HP tells Wall Street that 2013 profits will fall below expectations, $3.40 to $3.60 per share vs. earlier estimates of $4.16. The stock hits a 9-year low. That same day, HP puts out a lengthy (2056 words) news release as well as a link to the presentations to be used at the meeting. I downloaded the (excellent) slides, looked for the word “Autonomy”, and found a mere footnote in Meg’s presentation and, elsewhere, an upbeat slogan: “Taking Autonomy from start-up to grown-up”…. Neither the CEO nor Cathie Lesjak, the CFO, said a word to tell shareholders trouble was brewing.

Seven weeks later, HP reveals that the investigation into Autonomy’s alleged accounting improprieties had been going on since last May when an insider blew the whistle. If Whitman and her staff are invited by Lynch’s lawyers to give depositions under the  “penalty of perjury” they earlier waved in his face, they could face some painful What Did You Know and When Did You Know It questions.

HP was once a pillar of Silicon Valley, a shining example of technical and managerial culture at their best. Today, insignificance and mediocrity loom. Does Whitman, who waves a Make It Matter slogan to rally troops, really think an ugly, mud-slinging fight will make things better?

JLG@mondaynote.com

Losing The Plot

 

It’s a beautiful sight when, year after year, a company stays true to its original idea. But when a business loses the plot, we witness a sorry spectacle, an expensive slide into mediocrity. Every wayward company is wayward in its own way: Accountants masquerading as product planners; wannabe visionary execs jealousy trying to prove that they, too, can put a dent in the universe; board members panicking over bad press. But the result never varies: Customers leave.

A few weeks ago I was in France, enjoying the benefits of the French Paradox and happily testing its limits: Lots of duck fat washed down with an ethanol tincture of polyphenols. It was in this fulfilled state that I watched the launch of the latest iteration of an iconic product. There was a little stretch in one dimension, a little squeeze in another, measurable weight loss, more power better utilized, bigger screen for navigation…

The kommentariat were unanimous, the sum of the improvements equals a blockbuster.

I’m not talking about the boring iPhone 5. The occasion was the seventh iteration of the Volkswagen Golf, introduced at the 2012 Paris Motor Show (or, in the modest French appellation, the Mondial de l’Automobile).

The praise is deserved. Golf 7.0 comes with plenty of new features, yet stays backwards-compatible with previous releases…it’s still recognizable as a Golf.

Born in 1974, the Golf (then dubbed the Rabbit in the US) managed to stay true to Volkswagen’s overall corporate brief — its “People’s Car” mandate — while giving the idea new life by walking away from the Beetle’s design. The engine and drive wheels moved upfront; Giorgetto Giugiaro, the legendary and extraordinarily prolific designer, outlined the hatchback’s iconic silhouette, still recognized and loved 38 years later.

Admittedly, the Golf strayed a bit over the years, it gained weight, developed haunches. At one point, it grew to nearly twice its original mass. Worse, reliability was up and down, as were the experts’ opinions of its drivability.

But despite the swerves and cul-de-sac design details, Volkswagen managed to return to the original concept of a sexy, functional hatchback. And the customers didn’t leave — more than 30 million Golfs have been sold.

The Honda Civic story isn’t nearly pleasant. The Civic was introduced in 1967 as a tiny kei car hatchback called the N360 — for the 360 cubic centimeters of its motorcycle engine. In 1972, the little hatchback grew a pair of additional cylinders and became an auto industry icon, the first for Honda.

Year after year, Honda lovingly improved the Civic: Larger, smoother body; more comfortable interior; cleaner, more powerful engine; smoother suspension. For about twenty years, the Civic was a model of neat progression, of staying true to the original hatchback idea.

But in the mid-nineties, the Civic lost its unmistakable identity. No longer satisfied with being a versatile, dependable transportation machine, the Civic wanted to be treated with respect, it wanted…valet parking. A few years later, the Civic suffered a midlife crisis and tried to become a sports car.

What happened? Was it because of a change of the guard inside the company? Honda was often taken to task for being too much of a maverick; did the Japanese company try too hard to placate critics and become more “normal”?

The parallel Golf and Civic stories show a sharp contrast between the two companies. In many respects, the Civic started as a technically superior product. It had a better engine, better manufacturing, and legendary reliability. But Volkswagen stuck to the original concept and is well rewarded as a result.

There are even sorrier examples of lost plots in the auto industry — think Citroën — but it’s time to turn to our industry.

Regard Hewlett-Packard, serial plot loser.

In the early 70’s, HP owned the PC market (and forgive the anachronism…back then they were called “desktop computers”). Using the technical and financial might it had earned with its late-sixties “programmable calculator” line, HP developed a range of “discrete logic implementations” (integrated circuits) of their 2100 series minicomputer instruction set. It was a clean, visionary strategy. Very quickly, HP’s 9800 series of desktop computers flattened every competitor in its path: Wang, Olivetti, Tektronix, Seiko…

Then, in 1972, Intel introduced the 8008 microprocessor. HP looked down its nose at these  cheap, woefully underpowered 8-bit gizmos…there was no way these toys could compete with HP’s fast, powerful, 16-bit desktop devices — why, even HP’s old 9810A calculator used a 16-bit brain.

We know the rest of the story: The inexpensive devices Pac-Manned their way into HP’s PC business. The 9800 series was displaced by a crowd of entrants, many powered by Microsoft software, including the Apple ][, whose Basic Applesoft interpreter came from Redmond.

It wasn’t until 2002 that HP regained the PC industry’s top spot — and it only did so by acquiring Compaq, the deposed king of PCs. (Ironically, Compaq’s history is similarly predatory: It vaulted to the top when it acquired DEC, another erstwhile king, albeit of the  minicomputer industry. DEC missed the PC revolution entirely.)

Ten years later, after a sorry successions of CEOs, HP’s PC business has become a lackluster, low-margin (5%) endeavor, and Lenovo (or will it be Acer?) is about to assume the number one position in sales.

There is more.

HP was once the king of “mobile computing”. Starting with the HP 35 pocket device (1972), the company grew a phenomenally successful range of iconic devices such as the HP-80 and the HP-12C, the darlings of financial users.

In 1974, the HP-65 topped the range with its magnetic stripe reader for external program storage. The HP-80 had such high margins it provided most of the company’s meager profits during a mid-70‘s financial downturn. (Or so I, lowly HP trenchworker at the time, was told by “upper management”. I’ve researched the record but haven’t been able to confirm the factoid.)

HP owned the pocket-sized form factor, but they’ve since lost the mobile computing plot. There have been a few spasms — the iPaq devices, an iPod dalliance, the amazingly botched $1.2B Palm acquisition– but now HP plays no part in the mobile revolution.

HP CEO Meg Whitman knows this is a problem, that it must be fixed. She tells us that the company must “offer a smartphone because in many countries of the world that is your first computing device.” Her solution? HP won’t have a smartphone in 2013. (Whitman has also announced losses for this year, more losses for next year, and plans to lay off 29,000 people.)

Indeed, for more and more people, in both developing and developed countries, the smartphone has become the first computing device, the really personal computer. So what does “No Smartphone In 2013″ say?

There’s no dearth of Taiwan companies ready with customizable designs. That’s how Nokia got its first Lumia phones from Compal. So why isn’t HP coming up with a Windows Phone 8 device in the next few months? There’s only one possible answer: margins. The smartphone business, dominated as it is by Samsung and Apple, is now in a clones race to the bottom. For HP, this is an all-too-familiar plot line.

How can HP, with its new Make it Matter slogan, continue to lose its key plots? Waiting until 2014 to re-enter the smartphone race won’t help. And competing against Lenovo, Acer and others in the Windows 8 PC-cum-tablet space won’t make HP’s clone business more profitable.

JLG@mondaynote.com

 

HP’s PC Addiction

Why is HP still in the PC business? It must be for the sport, because the money isn’t there. Looking at the quarterly figures released this past week, we see PC revenue down 15% year-to-year, with a low 5.2% Operating Profit:

HP can explain. In the earnings release conference call (transcript obligingly provided by Seeking Alpha), CFO Catherine A. Lesjak invokes the floods in Thailand and their impact on hard disk production as one excuse for the PC revenue shortfall. For her part, CEO Meg Whitman ‘‘opens the first envelope”: She (subtly) blames her predecessor for his PSG spin-off announcement and the ensuing on-again-off-again business disruption.

But the Thailand floods didn’t seem to have much of an impact on Dell, whose latest quarterly numbers show 3% Y/Y growth for Desktop PCs, let alone on the Cupertino neighbor where the Mac business grew by more than 20%. And as a member of HP’s Board of Directors at the time, didn’t Whitman approve the decision to dump the PC?

None of this answers the question: Why stick with a declining product line within a declining industry? Part of the answer lies in the weight of PSG:

The PC is still HP’s biggest business…and its least profitable. The only explanation for staying in the game, to quote Meg Whitman in her conference call remarks:

‘It gives us great return on invested capital and a lot of synergies.’

Perhaps, but what happens to the enjoyable cashflow if the PC business continues to deteriorate, as an industry in general, and as a challenged product line at HP?

Personal computing now comes in three flavors: traditional, tablets, and smartphones. The latter two are dynamic and thriving while the traditional segment stagnates. HP has failed to gain any presence in tablets and smartphones, and now finds itself the biggest player in a market that’s in a race to the bottom.

HP’s absence from the tablet/smartphone segment isn’t for want of trying. When then-CEO Mark Hurd decided to acquire Palm, he was making a clear strategic move for HP to become a major player in smartphones and tablets, to gain independence from stodgy Microsoft, to control its destiny in the newer and more promising personal computing segments. The move was reinforced last August when HP’s Board supported Léo Apotheker’s decision to exit the unprofitable PC business, a gambit inspired by IBM’s similar decision years earlier.

Unfortunately, not-so-small matters of implementation compromised the grand design. Palm’s WebOS tablets and smartphones didn’t fly; Apotheker’s exit-without-an-exit-path announcement was followed by a hasty retreat and Léo’s no less hasty exit. Epaulette mate.

All HP can do now for its PSG business is pray. And, indeed, Meg Whitman bows to the Microsoft altar:

‘So we’re rooting for a fantastic Windows 8 product that’s delivered on time that we can get to the market before the holiday season.’

What does HP have to say about tablets? Not a word. Browse the conference call transcript; CMD-F, ‘tablet’, Enter… Nothing in Whitman’s prepared presentation, no T-word in the Q&A section. (A bonus finding: The silence of the analysts. Let the record show how lamely choreographed these Q&A sessions are. No analyst even dared to ask HP’s CEO about, you know, iPads, Kindle Fires, Android tablets… For once, the elephant-in-the-room metaphor applies: For Apple’s most recent quarter, iPad revenue rose to $9.15B vs. $8.87B for HP’s PSG. Definitely not worthy of a discussion for the benefit of HP’s concerned shareholders.)

At a WSJ event the same day, HP’s CEO finally admits the existence of the iPad…and gives it a patronizing pat on the head:

The iPad is terrific; I have one. I use it to read books or watch TV but I don’t use it to really get work done.

In another interview, as reported by Business Insider, Whitman recycles the old Blackberry enterprise security argument:

‘I think our sweet spot has to be around security. This whole security thing is a big worry, not just for big enterprises but also for medium enterprises and small and medium businesses. So if we can provide devices that consumers really want — and by the way, employees are consumers, too — and we can provide a tablet offering, then we have an opportunity to solve problems for the enterprise and small- and medium-business segments, with products that their employees like and are also secure in terms of protecting the enterprise’s data.’

The S-word paranoia stopped working for the BlackBerry some time ago. Enterprise users have embraced the iPad because, thanks to Apple’s ‘‘control freakery’’, the new tablets are more secure than laptops. I know of one giant oil company that deploys thousands of iPads (and iPhones), complete with the corporation’s own internal App Store, chock-full of homegrown applications for its office workers and road warriors.

It sounds like HP’s CEO is aping the best-of-both-worlds posture affected by Microsoft for its upcoming tablet software: We give you the productivity of a traditional PC plus the portability/fluidity of a touch-friendly tablet. She seems to have ignored the reason for the iPad’s success in business: Be better at less. The iPad doesn’t try to do everything a PC can do, it’s simply better at the things it does.

Business users have figured this out on their own, without waiting for the market research – or the blessings of their IT departments. In this post, TechCrunch reviews a new Forrester report on mobile and personal devices at work:

[T]he report notes that today’s I.T. departments think they have only a handful of devices out in the field: a PC and smartphone for most users, and maybe a tablet for a handful of execs. But in reality, one-half of info workers report using multiple devices, often behind I.T.’s back.

These workers prefer a set of tools to a Swiss Army knife.

Later in the same TechCrunch post:

Employees today are bringing their own devices largely outside of BYOD programs, Gillett says. While 73 percent of workers pick their own phone, 53 percent their own laptop, 22 percent their own desktop, and 66 percent their own tablet, significant numbers of workers report paying for the devices themselves. In the case of smartphones, for example, 57 percent report paying the full price for the device themselves, and 48 percent report paying full price for their own tablet.

There was a time when HP, Dell, and others could sell fleets of PCs because employees had to take what IT gave them. Today, users/workers are more inclined to decide for themselves which devices they want and, in many companies, management supports the initiative because it improves productivity without an increase in risk or cost.

Does HP stand a chance to become a viable supplier of the kinds of devices business users choose for themselves? We know the official answer: We’ll try harder; we’ll eliminate silos and inefficiencies in the supply chain; we’ll innovate again. Some of that may work for a while…but will it work faster than the competition? Also, with the exception of the departed CEO, most of the people who got HP in its current situation are still there. Will the same crew cause the same effects?

I still think HP’s initial intuition was right, that the PC business, as driven by Microsoft and Intel, will increasingly become a race to the bottom — with the two Wintel allies sucking all the profits. Instead of ‘‘rooting for a fantastic Windows 8”, HP should root around for a buyer for its PC business.

JLG@mondaynote.com

How Bad Boards Kill Companies: HP

‘A good Board can’t make a company, but a bad one will inevitably kill it.‘ Thus spake Barry Weinman, the Gentleman Capitalist, when I joined the VC brotherhood. He meant to tell me to watch out for co-investors on the Board of companies in our portfolio of investments. And he was right. We, Vulture Capitalists, are supposed to be ruthless, but, in fact, we’re toothless. We see trouble ahead, but we dither, we squabble and only make the hard decisions when the damage is done.

While early-stage companies are especially fragile, one would hope mature ones, having survived childhood diseases, are less vulnerable to the Bad Board malady. But no, for a large company, a dysfunctional Board of Directors can be just as toxic as a divided investor syndicate is for a startup. We have two Valley icons to prove it: Yahoo! and HP.

Last week, Yahoo! unceremoniously ejected its 3-year CEO, Carol Bartz, who promptly and publicly questioned its Chairman manhood and called the Board a bunch of doofuses. Wisely, Roy Bostock, the Chairman in question refused to take the bait. Bartz calmed down. And “not-for-sale” Yahoo! directors and temp CEO wrote the troops, urging them to keep up the good work — while they’re caucusing with investment bankers for a sale. Whole, or one limb at a time.
Here’s a short sample of the message Yahoo! co-founders and Chairman hope will motivate the troops:

“What Yahoo! needs to do better — and we’ve talked about this — is accelerate innovation, reignite inspiration, and give our users what they want now…”

Gee, thanks. Let’s accelerate innovation, the troops repeat in unison. How come we didn’t think of it before. All Things D’s Kara Swisher gives the full and rightful savage treatment to the lame messages from the top. More

HP’s Tortured WebOS Positioning

As an old HP fan, the rebirth of WebOS is painful to watch. Palm, after missing the ‘‘App Phone’’ transition was effectiv ely taken over by an investor group led by Elevation Partners. They promptly installed Jon Rubinstein as CEO, banking on his successful Apple experience to breathe new life into Palm. He did: In June 2009, Palm 2.0 launched the Palm Pre smartphone based on a new and very promising platform called WebOS. For reasons still in doubt (imperfect hardware, Sprint as the chosen carrier partner, young software, a perceived lack of applications, unusual ads…) customers didn’t vote with their wallets. Palm 2.0 investors got tired and the company was sold to HP in April 2010 for $1.2B. (At the time, I predicted no one would pick it up…)

HP immediately positioned WebOS for a broader role: it would also run on devices such as the company’s printers, improving their UI. On the surface of things, a good idea. And buying Palm was a declaration of independence from Microsoft: HP would control its smartphone (and tablet) future.

Back in September 2010, addressing the “Apple Problem”, Todd Bradley, the senior exec in charge of HP’s Personal Systems Group, took pains to dismiss ideas of direct competition with Apple: “… emulating Apple is not part of our strategy…”
When HP’s WebOS tablet, the TouchPad, was finally announced on February 9th, comparisons with Apple and Android couldn’t be avoided. (YouTube video here.)

In a BBC interview, HP’s new CEO, Leo Apotheker, kept the Apple comparison alive: “I hope one day people will say ‘this is as cool as HP’, not ‘as cool as Apple’.”
This is a worthy goal, one with the potential to motivate the troops. In principle, it can be done: some call Apple the new Sony; others see Samsung as having taken Sony’s place.

But… Isn’t this type of goal better kept quiet, working and working until the market says you have dethroned the incumbent?

We now go back to last month’s D9 conference and its proven formula: captains of industry softly interviewed by Walt Mossberg and Kara Swisher. The “softly” part is a bit misleading: these two journalists don’t do attack interviews, they might ask the occasional follow-up question, or let a pregnant pause signal BS detection and, on occasion, push the careless fabulist to dig deeper. But they mostly let their audience of industry insiders judge for themselves.
We, too, can do this.
For example, we can turn to Leo Apotheker’s on-stage performance at the conference. (See the video here.)

When asked about what took HP so long to come up with a tablet after Palm’s acquisition a year ago, the company’s CEO replied he wanted the TouchPad to be perfect when shipped. A friend sitting next to me in the audience turned and asked, sotto voce: ‘Why his he doing this to himself?’ And to his people, one might add. What is the benefit in setting up such a high bar?

Bill Walsh, the legendary football coach, used a better approach: before a game, he gave detailed praise to the adversary. Great quarterback, sharp throws, hard defense, and so on. If Bill’s team won, they did so against a worthy opponent. If they lost, well, this had been a hard fight against a clearly superior opponent. Safe and gracious.

Last week, after setting lofty expectations, HP launched its WebOS TouchPad.

None of the first reviews contained the word “perfect’’. Most praised WebOS features such as the Card UI, the Synergy integration of information sources and its unrestricted multitasking. But, too often, the praise was followed by criticism of poor execution.

Walt Mossberg, the Walt Street Journal “gadget guru” and arbiter of high-tech taste ended his detailed review saying: ‘I can’t recommend the TouchPad over the iPad 2’.

Gizmodo’s review is best summed up by its opening paragraph:

“I am so goddamned tired of the iPad. Which is why I was so excited for the TouchPad. And that’s why I feel so completely crushed right now.”

Last February, when the TouchPad was first announced, CNET UK gave it a very positive review:

“If you’ve been hankering for a credible alternative to Apple’s iPad, hanker no more. We’ve sat down with the HP TouchPad, a new contender to the tablet throne — and it is, for desperate want of a better word, amazeballs. It promises a host of advantages over the all-conquering iPad, including a dual-core CPU, no-nonsense media handling and, joy of all joys, Adobe Flash playback.”

This was then. Last week’s CNET’s review ends with this bottom line:

“The TouchPad would have made a great competitor for the original iPad, but its design, features, and speed put it behind today’s crop of tablet heavyweights.”

As for Flash performance, while Ars Technica gave the TouchPad a more “fair and balanced” hands-on, it nonetheless joined other review sites in noting flawed rendering:

“One big problem with browsing is Flash. Yes, it’s nice to avoid non-functional gray or black pages every time you visit a restaurant website, but we encountered far too many instances where some site’s Flashy goodness brought the entire TouchPad to its knees.”

(I just found out I’m not alone in pointing to the trouble with making promises of perfection. In a June 1st Market Watch interview (video here), Walt Mossberg opined the claim to a perfect-at-birth TouchPad “might come back to haunt Apotheker as HP tries to penetrate the market dominance of the iPad with the TouchPad.”)

This launched HP into damage control mode. First, a by-the-book response: The less-than-perfect features widely remarked upon by reviewers will be taken care Real Soon Now. According to Walt Mossberg’s TouchPad review, “H-P acknowledges most of these problems and says it is already working on a webOS update, to be delivered wirelessly in three to six weeks that will fix nearly all of them.”

But, wait a minute, if the bugs can be exterminated so quickly, why didn’t HP wait “three to six weeks” and execute the perfect launch promised by their CEO? Did Apotheker get to test the product himself and decide it met his standard for perfection, or did his staff tell him bedtime stories?

Then, Richard Kerris, the exec in charge of Developer Relations re-assures us: “We think the world of Apple and have the utmost respect for their products,” said Kerris. “It would be ignorant for us to say that we are going to take it [the market] away from Apple.”

Next, we’re told the TouchPad isn’t an iPad killer, but an “enterprise play”. By the same Richard Kerris: “We think there’s a better opportunity for us to go after the enterprise space and those consumers that use PCs.”

In the meantime, another HP exec, Eric Cador, claims his company’s TouchPad will become better than number one: “… in the tablet world we’re going to become better than number one. We call it number one plus.”

Jon Rubinstein comes to the rescue and compares the TouchPad’s teething problems to Apple’s early versions of OS X. In his memo to the troops, Ruby, as he is affectionately known, shows leadership and reminds everyone of Apple tribulations when rebuilding the Macintosh software foundation after Jobs came back to power. True.

But… Apple had a following HP lacks today. The adversary was Windows, great market power and not especially respected for its technical prowess. And today’s competitors are of two kinds, the huge iOS monolith and the even larger and proliferating Android.

In his D9 interview, Apotheker argues WebOS gives HP the ability to control better control its destiny by making both hardware and software like, you know, Apple. A few weeks later, we’re told HP is looking for WebOS licensing partners — thus opening itself to competing on price and features with its licensees, something Google, Apple and Microsoft have studiously avoided. (In the mid-nineties, Apple briefly tried to have it both ways. Profits plunged, Jobs came back and put an end to the bleeding.)

Unfortunately, I’m not done with the complicated positioning message.

Earlier this year, HP’s CEO made the claim WebOS would run on “100 million” devices. To quote the ZDNet article: “Although that 100 million figure sounds crazy it should be noted that HP shipped more than 52 million printers in 2010 and 64 million PCs. Tablets and smartphones are gravy.”

On PCs, as discussed in the March 13th Monday Note, the idea, an old one, is to have a “mini-OS” that’ll boot much faster than Windows so you can quickly check your webmail or your Facebook page. Printers would get better a nicer touch-UI. All this leading to grand statements of a boon for application developers: 100 million devices! Write Once, Run Everywhere! Neat theory, unclean reality. Just take a look at applications written for smartphones when playing on a tablet. iPhone apps do run, technically, on an iPad. And developers prefer rewriting those to better use the full screen. And what about code written for a Pre smartphone running in a printer, or a PC laptop using WebOS in a “quick-boot” arrangement?

We even hear rumors HP might do a Windows 8 tablet after all. No warranties expressed or implied.

In any event, this is a sad display of a once and still mighty company badly messing up its WebOS and TouchPad messages.

The reality is simpler — and harder: HP decided to enter the smartphone/tablet fray. It thus competes with Android and iOS. The consumerization of IT renders the “enterprise-only” pivot null and void. In this new world, Google and Apple wage an ecosystem war: devices + apps + distribution. Add marketing, if you want, but Word Of Mouth is still more potent than ad dollars. Or merely reinforces it.

This is the war HP is in. Bragging, pivoting or denying will only hurt.

JLG@mondaynote.com

WebOS Everywhere

by Jean-Louis Gassée

Where have we heard a similar mantra? Despite their apparent divorce from Microsoft, it sounds like HP’s brains have been infected with a mutation of the “Windows Everywhere” virus.

Let’s recap.

Late April 2010, HP acquires Palm for $1.2B. In July 2010, then-CEO Mark Hurd tells us he didn’t buy WebOS just for smartphones, but also for printers and tablets:

“We didn’t buy Palm to be in the smartphone business. And I tell people that, but it doesn’t seem to resonate well. We bought it for the IP. The WebOS is one of the two ground-up pieces of software that is built as a web operating environment [...] We have tens of millions of HP small form factor web-connected devices [...] Now imagine that being a web-connected environment where now you can get a common look and feel and a common set of services laid against that environment. That is a very value proposition.”

This sends two messages:

- No more Windows Mobile or Windows Phone 7, we “go Apple’’. We’ll own the entire hardware/software combo. (Contrast this with Nokia which is heading in the opposite direction, abandoning Symbian to “go Microsoft”, literally this time.)

- We’ll put WebOS everywhere: tens of millions of HP small form factor web-connected devices.

Mark Hurd steps on a mine, moves to Oracle and, in September 2010, HP gets a new CEO, Leo Apotheker.

Does he change strategy?

Not at all. On February 9th, HP announced its WebOS tablet, the TouchPad, and two smartphones, the Pre 3 and the neat-looking, diminutive Veer.

These products haven’t shipped yet. We’re told “Summer” for the TouchPad and Pre3, and “Spring” for the Veer. I hope to get my mitts on them as soon as I can. I’m intrigued: How will the HP devices fare in a market where Google/Android, RIM, and Apple keep strengthening their positions? To borrow from Stephen Elop’s “Burning Platforms” memo, this is no longer is a war of platforms, it’s a war of ecosystems:

“The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, e-commerce, advertising, search, social applications, location-based services, unified communications and many other things.”

Regarding product details and the agility of the UI, HP’s announcement is enticing…but little is said about the company’s plans to build a viable universe around these new devices. Perhaps the plan is to announce the products early so developers, content providers, and channels have enough time to evaluate the opportunity and, if committed, be ready when the products ship.

This week, Leo Apotheker went one step further. On page 2 of a meaty Bloomberg Businessweek article, we learn that “… starting next year, every one of the PCs shipped by HP will include the ability to run WebOS in addition to Microsoft Corp.’s Windows… The move is aimed at enticing software developers to create a wider range of applications that would differentiate HP PCs, printers, tablets and phones from those sold by rivals.

On the surface, WebOS developers will have the tens of millions of PCs and laptops HP sells every year as targets for their applications. More devices, bigger opportunity.

But the reality is much more complicated.

First, is this an either/or proposition, run Windows or run WebOS? Or is this a quickboot arrangement similar to Splashtop, a customized Linux software packages that boots in 5 seconds or so, versus the minute or more it takes with Windows. (I checked, after more than a minute no have apps have loaded on my Dell netbook.)

With Splashtop, you can quickly take a look at web pages or Gmail, but you still need to boot into Windows if you want to run Office applications. Splashtop doesn’t appear to be gaining much traction. Early adopters such as Asus (and HP) don’t seem eager to make it a standard offering on their products.

We also have virtual machine solutions such as Parallels and VMware Fusion. These products run Windows within a Mac — and they do a pretty good job of it in my experience. The dueling OSs now both use Intel chips and the virtual machine lets you use both without rebooting.

Rebooting annoys users. Very few use such a procedure — hence the popularity of virtual machines. If users won’t reboot, there’s no opportunity for developers. This leads me to believe that the WebOS “graft” on the HP PCs will be more like a quickboot proposition where you’d first boot into WebOS, and then into Windows. Or, as HP might discreetly hope, you’d boot into WebOS and stay there. If the user finds enough useful applications in the WebOS environment, why boot Windows?

Then we have the Intel chip problem: WebOS and its applications run on ARM hardware. This would force HP to develop and maintain two versions of its OS. It’s feasible, but it adds complexity, costs, and bugs. And for developers, it’s far from ideal: WebOS applications would have to run on two processors and on an indeterminate number of form factors: netbooks, laptops, tablets, printers. (Digressing again on Nokia: The number of target devices and form factors is what caused Nokia to buy TrollTech for Qt, its cross-device development tools and UI. With the MicroNokia deal, Qt is no longer strategic and will be sold to Digia.)

But wait, there’s more. At CES this year, Steve Ballmer announced that the next version of Windows (8?) will be ported to ARM. This is Microsoft’s likely path back into the tablet market it lost to Apple and the coming wave of Android tablets. If we are to believe Bloomberg, an ARM-based Microsoft tablet will be available for the 2012 back-to-school season.

Is this what Leo Apotheker had in mind when he mentioned WebOS on PCs?

If so, here is how the HP PC scene could look like “sometime” in 2012:

- Intel-based PCs and laptops running the “mature” Windows 7.
- ARM-based laptop and netbooks on Windows 8?
- Tablets using a version of Windows 8 with a touch interface?
- Some, but not all, “will include the ability to run WebOS in addition to Microsoft Corp.’s Windows”

Simple, easy to understand. Can you imagine what the sneers and the giggles, at Apple and Google, when looking at such a picture?

On Monday March 14th, HP’s CEO will outline his vision in greater detail.

Understandably, he wants to “decommoditize” HP’s PCS, he’s looking for a way out of the life as a Microsoft serf. PC makers are racing to the bottom, a race Leo Apotheker knows he can’t win. Hence “WebOS Everywhere”: a way for HP to better its destiny.

But another “everywhere’’ story won’t work.

Let’s hope he’ll explain instead where WebOS will focus and how it’ll make a difference for customers and app developers.

JLG@mondaynote.com

HP’s Board Gets No Respect

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And rightly so.

You recall: Last August, HP’s Board of Directors dismissed its wunder-CEO, Mark Hurd. Well-loved by Wall Street, although not so much by employees, Hurd turned HP around after the lackluster Fiorina years. He made acquisitions, cut costs, and put the company at the very top of the IT industry. But HP’s fearless leader was accused of having entangled himself, carnally and emotionally, with a female “marketing contractor”, and of having engaged in a few financial peccadilloes in the process of covering up the relationship.

I’ll hasten to add that Hurd reached an amiable—and solid—settlement with the former soft-porn actress. By “solid settlement” I mean we’ve heard exactly nothing from the aggrieved woman, or from Gloria Allred, her highly expressive Hollywood attorney. (As a self-described “Fearless Advocate for Justice and Equality”, Ms. Allred appears to dig gold on behalf of the rejected/dejected paramours of media and sports celebrities.)

While Hurd tried to do the right thing after his alleged mistakes, HP’s Board and management repeatedly and needlessly pilloried him, barely stopping short of accusing their former CEO of fraud. (See more sorry details in this Monday Note.)

All this led Larry Ellison to publicly lambaste the HP Board for kicking Hurd to the curb—and to promptly hire him as co-president of Oracle.

Ignoring the “when you’re in a hole, stop digging” maxim, HP doubles down and sues Hurd. Their complaint? As Oracle co-president, Hurd will inevitably misuse HP’s confidential information and cause his ex-employer grievous harm.

Larry chuckles and lashes out again. He calls HP’s suit vindictive, which is true, and adds that it will make it impossible to continue as business partners, only somewhat true as each had already recently moved into the other’s business. Oracle bought Sun and HP got into software and services by acquiring EDS.

A few days later, on the eve of Oracle’s OpenWorld, the suit is settled. HP’s pain is salved by a few million dollars, and the threat of the misuse of confidential information is suddenly, mysteriously no longer an issue. One wonders about the damage HP’s Board did to the company’s reputation by treating this alleged sinner in such a bullying and ultimately lame way.

While Hurd stays out of the limelight plotting Oracle’s next moves, HP directors keep stoking the coals for their critics. In their quest for a new CEO, the Board rejects internal candidates for the third time and pick an outsider: Léo Apotheker, ex-CEO of SAP Germany. This leads to another salvo of Ellison jibes. (When Larry calls himself “speechless”, you know he’s having a good time.)

But wait, there’s more.

What does the Board do besides recruiting Apotheker? They hire Ray Lane as Chairman. As the link to his Kleiner Perkins bio proves, Lane is, without a doubt, an “industry figure”, the type Kleiner Perkins, one of the largest VC firms in the world, likes to co-opt. But the slick KPCB bio (there is, significantly, nothing on him on Wikipedia) omits an important episode: Ray’s acrimonious departure from Oracle. The more charitable souls among us hope that everything is forgiven and forgotten. But knowing the protagonists, Larry and Ray, a more realistic view is that HP’s Board brought Ray in with a specific intent: They want to strengthen the team for a fight against Oracle.

There are three problems with such a move.

First, we now have two muscular venture capitalists on HP’s BoD: Lane and Marc Andreesen, from Andreesen Horowitz (as an aside, admire the firm’s spartan site). While some argue that it’s great that HP has such connections in the VC world (as if any executive or Board member couldn’t get us VCs to return their calls), there’s a governance problem. There will be many situations in which Mark’s or Ray’s existing investments and connections will raise conflict of interest questions; they won’t be deemed independent directors. More

HP’s Board of Directors: Redemption or More Insanity Ahead?

HP’s Board of Directors has accumulated an impressive record of bad judgment calls, the latest being the lame lawsuit against their recently deposed CEO, Mark Hurd, who quickly joined Oracle as Co-President and Director.

The History

Once a revered Silicon Valley icon, HP was arguably the first worldwide success to emerge from pre-war Stanford where Bill Hewlett and Dave Packard studied under the illustrious Frederick Terman. Unfortunately, the insiders who were groomed to replace “Bill & Dave”—first John Young, an HP lifer (1968-1992), followed by Lew Platt, another long-termer (1966-1999)—presided over the company’s long slide into comfortable bureaucracy and middling financial performance.

In 1999, HP’s Board was seduced into giving the CEO mantel to Carly Fiorina, a gerontophiliac sales exec from AT&T/Lucent…only to fire her in early 2005. Known for her posturing and opaque pronouncements, Fiorina antagonized and mystified insiders and industry observers alike. John Cooper, CNET’s Executive Editor and longtime tech writer, characterized one of her more frustrating talks as “a Star Trek script” containing “enough business-babble to reduce even the most hardened McKinsey consultant to a state of dribbling catatonia”. Nice.

To succeed Fiorina, HP went outside again and, this time, managed to snare an experienced and accomplished CEO: As head of NCR, Mark Hurd had led the company through a successful turnaround.

About a year after Hurd’s election, HP’s Board became embroiled in the Pretexting scandal. Board members spied on employees and journalists—and even on each other—in an attempt to track down leaks of confidential strategy documents. This ugly episode led to several Board and executive departures: Chairwoman Patricia Dunn was thrown under bus; HP’s General Counsel, Ann Baskins, “took the Fifth” at a Senate hearing; another director, Tom Perkins, and several employees left as well. What Mark Hurd actually knew or did in relationship to this episode has never been clarified.

Despite the scandal and the departures, Hurd made good on his reputation as a turnaround CEO and, through carefully crafted acquisitions and cost-cutting, put HP back at the top of the computer industry in just five years. His wizardry with numbers, his sober talk, and his attention to execution left the impression that HP had finally found the right helmsman.

But then disaster struck. As discussed in our August 29th Monday Note, HP’s Board unceremoniously fired Hurd, publicly berating him for conduct unbecoming a CEO and barely stopping short of accusing him of fraud. And then, after pillorying him, the company inexplicably paid off the “disgraced” Hurd to the tune of $30M to $40M. HP shareholders sued the directors and the media roasted them.

Enter Ellison

Larry Ellison and Mark Hurd have known each other for several years. They’d been business partners when HP and Oracle allied themselves in serving large government and enterprise clients—and they’re tennis buddies as well.

After harshly criticizing HP’s trustees for firing a star executive, Ellison hired Hurd. In keeping with his leadership style, Ellison made room for the new lieutenant by summarily chucking the previous tenant, Charles Phillips, who, ironically, had also become embroiled in a “relationship contretemps” with an ex-paramour. I’ll hasten to say that I prefer Larry’s summary and clean manner to HP’s: Chuck Phillips had a successful career at Oracle, Larry wished him well on his way out, the money flowed, and everyone moved on to the next stage of their lives. More

Curious Summer

by Jean-Louis Gassée

Nothing much happens in August, we thought. Wrong. Our three-week break has been filled with a number of “interesting” events.

Curious Yellow

Let’s start with Mark Hurd’s exit from HP after five years of great financial performance as CEO. If you missed the fireworks, you can get a refresher in this Business Insider post by Henry Blodget, or this excellent NYT piece by ace columnist Joe Nocera.

In twitter terms, it looks like this: A “marketing contractor” claims Hurd sexually harassed her; an inquiry fails to substantiate sexual harassment but finds “an inappropriate close relationship”; the investigation also reveals that expense reports were fudged in order to conceal a tête-à-tête with the female. Mistakes were made, Hurd is fired. End of story.

Not quite.

When a CEO gets the boot, a modicum of decorum is usually observed . Not this time. From HP’s General Counsel we hear that “Mark demonstrated a profound lack of judgment that seriously undermined his credibility and damaged his effectiveness in leading HP”. And that’s on the record.

In her memo to the troops, Cathy Lesjak, HP’s CFO and now interim CEO, accuses Hurd of “misusing corporate assets,” referring to the illegitimate expense reports and alleged payments to the erstwhile soft-porn actress for work not performed.

But forget the salacious details; there’s always Google for that. What puzzles most of us is the exit package story. HP maligns Hurd, accuses him of what lay people call fraud… and then grants him an exit package worth tens of millions of dollars, $35M according to unverified estimates. Attorneys, less puzzled than supercilious, sue HP’s Board on behalf of despoiled shareholders.

In the next few weeks we’re certain to get a clearer picture of the inside animosity directed at the cost-cutting, Wall Street-pleasing CEO. His alleged misconduct may turn out to have been nothing more than a convenient pretext, a word that resonates in HP’s history.

Curiouser and Curiouser

This one’s harder to explain: Intel’s acquisition of McAfee. If you own a Windows PC with Intel Inside, there’s a good chance your computer came with bundled anti-virus/anti-spam/anti-spyware software from companies such as Symantec or McAfee. Microsoft entered the fray a few years ago and provides what they call Security Essentials—for free (Microsoft also offers a free safety scan here). PC Tools, AVG, Kaspersky Labs and many others provide the now customary combination of free and paid-for software security products.

In short, this is an active, thriving scene: Symantec’s revenues are at the top of the $5B range and McAfee’s are close to $2B, despite the competition with “free” products from Microsoft and others.

So what possessed Intel’s CEO Paul Otellini to risk his reputation—and more than $7B of his shareholders’ cash—by wading into such a complex, competitive sector? Seasoned Valley observers such as the WSJ’s Don Clark are politely puzzled (see here and here). Otellini intones a new mantra: Security Is Job One. This marks “Intel’s move from a PC company to a computing company”. Sonorous words, certainly, but without a story of higher revenue and profit for the combined companies, there’s not much to back them up.

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